01/01/2010

Q:I am a 62 and a half year old widow in Ohio,
and I just lost my job.

I currently receive a small pension for my deceased husband's employer. Those payments will end in seven years. I'd like to apply for my Social
Security benefit now, to supplement that pension. Can I draw unemployment
insurance at the same time? In seven years when the pension runs out,
can I switch from my own Social Security benefit to my survivor Social Security benefit? The survivor benefit is much more than my own full benefit would be.

My employer is giving me 14 weeks of severance pay, to be
paid out as regular payroll instead of in a lump sum. If I apply for Social
Security now, will those severance payments affect my benefit? Should I
wait until my severance has run out before I apply? --BP
via email

A:
Let's dispose of the unemployment insurance question first, since it's the
simplest. Yes, you can collect unemployment insurance and Social Security at
the same time. Only five statesdon't
allow this, and Ohio
isn't one of them.

You
don't have to wait until your 14 weeks of severance ends
before you apply for Social Security. The severance won't affect your Social
Security benefit.

You’re smart to raise that question, though. When you
collect Social Security before reaching your full retirement age – which in your case is 66 -- you forfeit some benefit if you are earning over a certain amount a year. In 2010, you
forfeit $1 of your benefit for each $2 you earn above $14,160.If you reach full retirement age during 2010,
you forfeit $1 of benefit for
each $3 you earn above $37,680, until the month you reach full retirement age. (These amounts are the same as they were in
2009.)

Once you reach your full retirement age, there’s no more
earnings cap: you get your full benefit regardless of how much you make. Also, whatever was deducted earlier because of your earnings is added back
into your benefit. (In other words, you don’t permanently forfeit this money.)

You're 62. Depending on what you earn, 14 weeks of wages certainly could temporarily reduce your Social Security benefit. However, severance doesn’t count as
wages.

After they stop working, people often receive special payments, such as
severance pay, bonuses, and accumulated vacation or sick pay, says Jane Zanca,
a Social Security Administration spokeswoman in New York City. Those special payments don't count towards the annual earnings cap. But in your case, your severance pay will
automatically be reported to Social Security as wages, since you’re being kept
on payroll for 14 weeks. To make sure it’s excluded from the earnings cap
calculation Zanca says you should get a
letter from your employer stating the amount you received and saying it that
was severance.

As
a widow, you have an option not available to other Social Security recipients.
When a married person applies for Social Security before full
retirement age, she is automatically applying for her own benefit and her spousal benefit,
and gets whichever is bigger. But a widow can choose to take either benefit, and switch
to the other at her full retirement age. (Widowers also get this choice.)

To collect the maximum benefit – whether it’s your own or your
survivor’s benefit – you must postpone applying for it until you’re 66.

Let’s
put imaginary numbers on this to make it clearer. For example, let’s say if you
wait until 66 to apply, your own benefit is $1,200 and since your survivor’s benefit is much bigger, let's say it's
$2,000. In that case, if you apply at 62 for your own benefit, you'll get $900; if you apply at
62 for your survivor’s benefit, you'll get $1,620.

You’re proposing to take the
$900 a month now to supplement payments from your husband’s pension, and
switch to the $2,000 survivor’s benefit in seven years when the pension stops.
You are allowed to do that, and clearly i makes good financial sense.

For the rules that explain these options,
go to the Social Security Administration's Web site, here and here.